The exhaustion date: why a date beats a percentage in a board meeting
Board members and lenders are not construction people. They are people who approve money and ask when the next request is coming. A percentage of contingency remaining asks them to do arithmetic they do not have the inputs for. A date does the arithmetic for them.
The exhaustion date is the month in which, at the current rate of draws, the contingency balance reaches zero. Set next to the substantial completion date, it answers the only question the room actually has.
What a percentage hides
Say the contractor's contingency on a fictional $35 million county courthouse is 62 percent consumed in month eleven of a twenty month schedule. That sounds roughly in step. It is not, because the fund did not drain evenly. Half of the draws came in the last three months as mechanical coordination started, and there are nine months of mechanical and finishes still to go.
A board hearing 62 percent will file it as fine. A board hearing that the fund runs out in month fifteen of twenty will ask what happens in months sixteen through twenty. That is the right question, and the percentage never prompts it.
The same applies to lenders. A draw request that shows contingency remaining as a dollar figure invites no follow up. One that shows a projected exhaustion month before completion will trigger a call, which is the point. The lender should know before the owner needs to ask for more.
How the date is built
The inputs are simple. Remaining balance. A monthly draw rate. The rate is the judgment call: it can be the average across the project to date, or the trailing rate over the last three or four months. Divide the balance by the rate and you get months of runway. Add that to the current pay application month and you have the exhaustion date.
The two rates often give different dates, and that difference is information. If the average rate says the fund lasts to completion and the trailing rate says it runs out three months early, the draws have accelerated recently. The owner wants to know why before choosing which date to put on the slide.
It is also worth computing a third version: the date if the remaining draws match the risk profile of the remaining work. That one is a manual estimate, not a formula, and it belongs in the narrative rather than the chart.
Putting it on one line in the report
The report line should carry three dates and nothing else: projected exhaustion on the trailing rate, projected exhaustion on the average rate, and substantial completion. If both exhaustion dates fall after completion, the line is green and the board moves on. If either falls before, the line is a flag and it gets a paragraph underneath.
The paragraph should say what the owner intends to do about it. Options usually include a transfer from owner contingency, a scope deferral, a conversation with the contractor about causes, or simply watching for another month because a single large draw distorted the rate. Naming the option is the owner's job. The date just makes sure the job gets done in time.
When the date moves backward
An exhaustion date that moves later month over month is a fund recovering, often because a burst of early draws has settled. That is worth saying out loud, because boards remember bad news and forget that it was corrected. The stored history of the date, month by month, is what lets the owner show the recovery rather than assert it.
The tool behind the line
Costwitness computes the exhaustion date from the stored monthly balances on each contingency fund, shows both rate methods, and compares each to the completion date on the GMP. When a date lands before completion the software raises a flag in the monthly report. Deciding what to do about the flag is the owner's decision.
What to do this month
- Compute the exhaustion date for each contingency fund using both the average and trailing draw rates.
- Put both dates next to substantial completion on one line of the next board or lender report.
- If either date is before completion, write the paragraph that says what the owner plans to do about it.
Questions on this
What if the project has only a few months of draw history?
With fewer than three months of draws, any rate is a guess. Use the average rate, label it as early, and revisit monthly. The value of the date grows as the history does.
Should the exhaustion date include pending draws that are not yet approved?
Show two versions if pending items are large: one on approved draws only and one including pending. The gap between them is exposure, and boards should see it. Keep the two clearly labeled so nobody reads the pessimistic date as the current balance.
Does a date before completion always mean the owner needs more money?
No. It means the fund, at the current rate, will not last. The rate may fall as risky work finishes, or the owner may choose to defer scope. The date is a prompt for a decision, not a conclusion about what the decision should be.
In the product
Contingency ledger, Monthly owner report, Anticipated final cost. Free tool: Contingency Runway, Pre-GMP Readiness Score.
Keep reading
Earlier: What happens when the contractor's contingency runs out. Later: Contingency burn rate: how to read it against percent complete. All articles on contingency.
See the two funds on a project like yours.
Thirty minutes on a call. The twin drawdown chart on a fictional project at your GMP size, and the month the fund runs out.